Top Picks 2017: T. Rowe Price New Era

The commodity bear market, especially in oil, ended in 2016. The typical commodity bear market ends when prices collapse so much that production and new investment decline enough to reduce the supply coming on to the market, observes Bob Carlson, editor of Retirement Watch.

That happened in 2016. The outlook for oil and energy prices improved in late 2016 when OPEC and other oil-producing countries agreed to limits on production.

It takes a while for production and investment to ramp up after they have been reduced, so energy and commodity supplies should be relatively fixed for a while. In the meantime, modest global growth will cause demand to continue to increase.

Of course, the election made it more likely that energy companies would face reduced regulations, which was an additional boost.

A good way to invest in the end of the commodity bear market is through stocks of companies involved in the resource industries.

A good way to do that is through T. Rowe Price New Era (PRNEX), our top 2017 pick for conservative investors. This fund invests in companies involved in the natural resources industries.

Historically, 45% to 55% of the fund has been invested in energy companies (primarily oil companies) and 25% to 35% in basic materials companies, with the rest usually spread between utilities, industrials and consumer cyclical companies.

Near the end of 2016, the fund was invested almost 52.5% in energy and 25.5% in basic materials. The top holdings in the fund are all energy companies: Total (TOT), Exxon Mobil (XOM), Royal Dutch Shell (RDS.A), Occidental Petroleum (OXY) and Cimarex Energy (XEC).

In addition, 78% of the fund was invested in North American-based companies and almost 20% was in European companies. The fund returned over 25% for 2016 and has a yield of around 1.25%.